I'm not sure if I'm completely understanding your idea... but in your proposed scenario wouldn't Google be sponsoring a place were the actual attackers that want to screw their users can window shop for working exploits? All researchers would be getting money from Google for participating on their contest, to then sell their working exploit that would take Google a significant amount of time to fix to the highest bidding blackhat/government.
It should not be a blackmail sort of operation.
However, if you factor in the freelance/one-time-only factor, it becomes somewhat more fair, but still really good money.
But then you also factor in the fact that he's using a very unique skill set in order to do this job, one that maybe a few handfuls of people on this planet possess. And then I wonder.
But it's still good money, regardless :)
How exactly does it hurt the fame angle?
That said, ZDI may have a point that the requirement for the full exploit is unnecessary; seeing the exploit in action might be enough for educated guesswork, thus seeing more exploits might be a good thing (in terms of security, not reputation).
The obvious compromise would be to set two rewards: one for showing the exploit, another for showing its source code, at the hacker's option. By not disclosing the exploit the hacker would give up a higher guaranteed reward in exchange for a chance to make a juicier deal, but they'd be racing against Google's reverse-engineering effort.